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Steeling Zinc as The Anticipated Shortage Gets Closer

Even the newest of metals investor knows that Nevada is the Mecca for gold mining, producing almost 80 % of the US supply. Hundred’s of billions of dollars worth of the metal has been extracted since 1835. Everyone talks gold, maybe silver. Investors need to focus on zinc.

The zinc market remains somewhat ugly. Per pound, the price is around US$0.96. Forecasts seem to indicate that the price should see north of $1.00, maybe $1.20 in 2014-15. While price is important, the underpinnings to price are the oft-quoted looming zinc shortage. And as much press as gold gets, we really need zinc.

Arguably not the sexiest of metals, zinc is essential to a myriad of industrial uses and a critical component in the growing global demand for steel production. With almost 3.4 billion pounds of global zinc production set to disappear through 2015, new resources coming online should demand investor attention.

“Cypress Development (TSX-V: CYP) (OTC Pink: CYDVF) (Frankfurt: C1Z) is keenly aware of the importance of addressing the looming zinc shortage,” states Don Huston, President and CEO. ” Our latest drill program at our 100% owned Gunman zinc-silver-copper project in Nevada evidenced three impressive targets in the centre of the property. Assays from five-foot interval samples within the oxide zone and adjacent fractured dolomitized limestone show spectacular zinc and silver mineralization.”

Gunman Property Nevada

The 1140-acre Gunman is 100% owned by Cypress, which has completed 33k feet of drilling to realize impressive per-ton grades of 5-33% zinc and 0.5-15 oz. silver over considerable widths. The key here is that zinc enjoys ongoing and growing demand in the face of major mine closures in Canada, Australia and Ireland. The sentiment within the industry is that there is not enough supply coming on-stream and prices are forecast to rally as those supplies tighten further.

In a recent report, The World Bureau of Metal Statistics reports the market was in a small surplus last year, specifically 78,000 tons between January and December 2013, but that is down from a 343,000-ton surplus the previous year. China is the world’s largest consumer and refiner of zinc, so demand and production in the country is key to the fundamentals for the metal.

A leading zinc supply/demand indicator is the LME stock number, which dropped from 1.1 million tons a year ago to approximately 650k tons–roughly November 2010 levels. The price rose from that point to about $1.15 a pound in 2011 and bottomed at $0.80. Current price as stated, is $0.96.

Huston continues: “More than 2 million tons of required new zinc supply is forecasted by 2016 yet there are very few new zinc mines in the development pipeline. The Company believes there will be strong upward pressure on the price of the commodity and the high grade, shallow Gunman zinc-silver project offers Cypress and its shareholders leveraged exposure to this potential price increase.”

Cypress’ leverage for investors to both zinc and the market dynamics is compelling. The Company has exceptional management, no debt and $1.2 million. HSBC states the coming shortage will be filled by smaller producers going into production over the next few years. Given CYP’s metrics, it should be noticed that investors could be well served to give it serious consideration. The shares trade at $0.03 with a market cap of $4.5 million.

Having now completed the recent 3000-foot drilling program, CYP plans to develop an independent NI 43-101 resource estimate on the Gunman over the next couple of months.

Table 1: RH Zone Zinc and Silver Assay Results

Hole ID

From (ft)

To (ft)

Interval (ft)

Ag (g/t)

Zn (%)

GMRC-3

55

95

40

60.3

2.00

and

140

155

15

33.5

3.20

GMRC-4

20

175

155

128.0

7.20

including

125

175

50

87.7

17.09

including

135

150

15

83.9

30.64

GMRC-5

5

205

200

63.3

8.90

including

125

180

55

147.0

21.00

including

150

165

15

100.1

32.20

GMRC-8

130

185

55

54.3

6.50

GMRC-9

50

225

175

121.0

12.00

including

130

215

85

209.2

19.70

GMRC-10

55

80

25

24.2

4.60

and

105

120

15

8.0

1.70

and

140

155

15

5.9

1.20

and

170

220

50

20.3

8.70

GMRC-11

0

150

150

18.3

3.10

and

165

215

50

125.6

7.90

* All intervals above were computed from Chemex assay results of representative, 5-foot interval samples collected from the reverse circulation sample return. All intervals have been selected based on a 1% zinc lower cut-off. The intervals above are restricted to contain no more than one included interval that falls below the 1% zinc lower cut-off. No high grade cut has been applied. All samples were continuously collected from each 5-foot interval during drilling. The samples are large and average approximately 6 kilograms in weight.
* g/t = grams per metric tonne.
* The true width lengths are estimated to be approximately 65%-75% of down hole intervals.

As the table above indicates, zinc and silver mineralization occurs both as long, highly variable but completely continuous mineralized down hole intervals (Hole GMRC-9 for example) as well as holes with shorter intervals of strong mineralization separated by lower grade intervals (Hole GMRC-10 for example).

There’s little question that there is a good potential resource at Gunman and investors have the opportunity to gain exposure prior to the resource estimate. Given that the property is located at the south extension of the Carlin Trend and directly west of Barrick’s Bald Mountain gold mine, the location is compelling.

The Other Properties

While Gunman is Cypress’ flagship and focus at the moment, the Company has other significant properties including the 100% interest McKenzie Island Gold Project on Red Lake in Ontario; 4,720 acres, located adjacent to the west of Goldcorp’s Gold Eagle Mines world-class Bruce Channel discovery, west of Goldcorp’s / Premier Gold’s Rahill-Bonanza project, and 7 kilometres due west and on strike of Goldcorp’s operating Red Lake and Campbell gold mines.

As well, The Twenty-One Silver-Gold Project is located approximately 100 miles southeast of Carson City, Nevada. Chip samples on the property returned assay values from 211 g/t (6.5 ounces) silver to 1141 g/t (34.5 ounces) silver and up to 2 g/t gold.

Finally, Cypress has vended all of its land holdings in Voisey’s Bay, Labrador into a private mineral exploration company called “South Voisey Bay Nickel Co. Ltd.” (SVBN). Five companies (including Donner Minerals, Cypress Development, NDT Ventures, Rcom Ventures and Curion) have each vended their mineral acreage into SVBN on a dollar spent per property share equity basis, totaling 1,000 square kilometres. Cypress is the 2nd largest shareholder of SVBN at (11.4%) with Donner Metals the largest shareholder at (76.5%).

The Bottom Line

For those who need to see reams of drilling data, the Cypress site is an excellent resource. For the rest of us, the fact that the Gunman is where it is, the extensive work done to date, the metrics of the zinc market and the silver kicker, make it a great candidate for a junior mining portfolio. With a 43-101-resource estimate only a couple of months away, ongoing drilling, and some of the savviest mining management around, the growth potential is enormous.

Nevada is basically one big mine. The key is to be in the right areas, prove up the properties and have the funds to do it. Cypress checks all those boxes.

Surrounded by majors, being located in the south extension the storied Carlin Trend and a short distance from Bald Mountain, Cypress seems destined to be or likely on the cusp of, producing a great zinc-silver-copper mine.

Not to mention the other properties, which continue to be under development.

Cypress has flown under investors’ radar, but given recent results and the spate of results to come, the current $0.03 share price could well look very cheap, very soon.

Bob Beaty for The Bottom Line Report.

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